Saferoads’ share price factors in a soft second-half

Saferoads Holdings
provides equipment such as barriers, guideposts and lighting, as well as traffic control devices such as signs, line markers and cameras. Given the ongoing investment required to maintain roads and build new highways, Saferoads should record robust medium-term earnings growth.

In the first half of 2009-10, Saferoads recorded a net profit of approximately $2.5 million, representing earnings per share of 9.8¢. The company’s profit was more than double that achieved in the previous corresponding period. However, Saferoads operates in an industry where the timing of projects is crucial, and this can account for a lumpy earnings pattern.

At the end of April, management informed the market that revenue for the second half of 2009-10 would reflect a lower level of major road projects, resulting in an expected full-year net profit of $2.8 million or earnings per share of 10.8¢. Since that news was announced, Saferoads share price has fallen from 72¢ to a low of 51¢.

Management said that the company is well positioned to benefit in the medium term when increased activity and road infrastructure spending is expected. Saferoads has a significant market share in a number of areas including safety fencing and crash barriers, and an earnings recovery should occur in the short term.

But even factoring in Saferoads’ soft second-half, it is difficult to see the company’s share price sliding any further. Based on Thursday morning’s opening share price of 55¢, Saferoads’ price-earnings ratio is five. Consequently, there is scope for an upwards rerating as more positive news emerges regarding upcoming projects.